Consider the consumption function, C = c0 + c1YD, we assume that c1 is

Question

Quizplus · Accepted Answer

The consumption function C = c0 + c1YD is an equation that relates consumption to disposable income.

The parameter c1 represents the marginal propensity to consume (MPC), which is the fraction of additional disposable income that is spent on consumption. The parameter c0 represents the autonomous consumption, which is the amount of consumption that occurs even when disposable income is zero.

Since the MPC is defined as the additional consumption divided by the additional disposable income, it must be a number between zero and one. Therefore, the best choice is D) between zero and one.

Note that the value of c1 may vary depending on the level of disposable income, but this does not mean that the answer is E). The question specifically asks about the value of c1, not how it varies with disposable income.

Consider the Consumption Function, C = C0 + C1YD, We